12/23/2002 @ 12:00AM

Pioneers Die Broke

Inventive geniuseshave a way of coming to bad ends, while theirimitators amassfortunes.

Gary Kildall
created the first operating system for personal computers–nearly a decade before
Bill Gates
signed his epochal deal with
IBM
for MS-DOS. Gates went on to become the world’s richest man; Kildall died in a brawl, scarcely remembered outside Silicon Valley for his seminal contribution.
Dan Bricklin
created the first spreadsheet program, VisiCalc, in 1979. After a costly legal spat alongside partner
Bob Frankston
, Bricklin sold out for less than $3 million to
Lotus
, which created a nine-figure fortune for
Mitch Kapor
from its VisiCalc imitation called 1-2-3. And even that killer app didn’t make the really big bucks for its owners. The biggest spreadsheet fortune wound up in the coffers of Gates’
Microsoft
, whose 1-2-3 knockoff, Excel, is the market leader today.

Why is it that innovators die poor–while imitators succeed beyond all measure?

There are notable exceptions.
Thomas A. Edison
, an inventive genius but also a shrewd entrepreneur, was a founder of what became the
General Electric Co.
At his death in 1931 he left a $12 million estate, big enough to have put him on The FORBES 400 list, had it then existed.

But his rival and, some would argue, intellectual superior,
Nikola Tesla
, spent his last years feeding pigeons outside New York’s Public Library, and died nearly penniless. With more than 700 patents to his name, Tesla invented radio, the coil transformer, wireless communication, fluorescent lights and the alternating-current motor, which allowed electricity to flow over long distances. He had about as much business savvy as a puppy; he might have been fabulously wealthy had he not signed away AC royalties to George Westinghouse and patent rights to a wireless broadcasting system to J.P. Morgan.

Indeed, the history of American commerce is replete with visionaries who couldn’t turn their prodigious creations into commensurate bank accounts. Some were temperamentally unsuited to be ruthless businessmen. Maybe Bricklin is in that category. “I’m not rich because I invented VisiCalc, but I feel that I’ve made a change in the world,” he said in 1985. “That’s a satisfaction money can’t buy.”

Other inventors, like
Charles Goodyear
, were easy prey for crooks. “The history of invention,” he wrote in the 1850s, “proves that whoever attempts by inventions to improve the conditions of others, usually impairs his own, except so far as he may add to his happiness from the satisfaction of having done good to others.”

Goodyear was a dreamer, careless of his appearance and indifferent to money. His obsession, of course, was rubber. The substance had been known to the Western world since Columbus brought it back on his second voyage, but it had no practical use until the 18th century, when it was found that rubber removed pencil marks from paper–the origin of the word “rubber.”

In the early 19th century the Scotsman
Charles Macintosh
developed a process for making waterproof fabric by putting a layer of rubber between two layers of cloth. It was the first important use of rubber, and the misspelled “mackintosh” was soon in great demand in Britain’s rainy climate. By the 1830s the head of Charles Macintosh & Co. was
Thomas Hancock
, the most important person in Britain’s growing rubber industry.

A small rubber boom developed in both Britain and America as companies sought to utilize its remarkable qualities of elasticity and water repellency. But rubber had many drawbacks. For one thing it was smelly, a bit like the bottom of a compost pile. But far worse, it melted at high temperatures and became brittle at low ones. This was less of a problem in the temperate climate of England, but in the U.S. it was a fatal flaw. Goodyear decided that he was going to solve this problem.

For ten years Goodyear labored to find the answer. Time and time again he thought he had it, only to find that he had failed again. The hardware business he ran with his father went bankrupt, and he often found himself arrested for debt and thrown into jail. His family sometimes did not have enough to eat, but Goodyear soldiered on, turning the kitchen of wherever he was living into a laboratory, commandeering pots and pans, pawning the furniture when necessary to raise money to continue his experiments, borrowing from anyone foolish enough to lend to him.

In 1839 a happy accident gave him the answer. He had mixed rubber with sulphur and white lead, and dropped some on the kitchen stove. Instead of melting, it hardened. But Goodyear wasn’t a trained chemist (the chemistry of rubber was completely understood only well into the 20th century). It took him several more years to find the right combination of rubber, solvent, sulphur, white lead and heat that could be turned into an industrial process.

Visions of wealth danced in Goodyear’s head, but he made a fatal mistake. He sent samples to Thomas Hancock without filing for a patent in Britain, which has a strict first-to-file rule for granting patents. He thought the secret was safe and asked for £50,000–an enormous sum then–as the price of sharing it. But Hancock, deeply knowledgeable about rubber and its limitations, realized instantly the significance of Goodyear’s achievement. He proceeded to steal it.

Reverse-engineering the samples Goodyear had sent him, Hancock filed for a patent in Britain in 1844, a few months before Goodyear, who had obtained patents in both the U.S. and France. But the British market–in the mid-19th century, the most important in the world–was denied to Goodyear.

His brother-in-law paid Goodyear a flat fee of $50,000 for the American patent rights and founded what would grow into
Uniroyal
. The
Goodyear Tire & Rubber Co.
, founded nearly 40 years after Goodyear’s death in 1860, was only named in his honor. Despite its effect on the future of the world economy, all that Charles Goodyear’s great invention earned him was immortality.

Gary Kildall maintained for years that Bill Gates had hoodwinked him when it came to winning the standard operating system for IBM, on the verge of introducing its first PC. At the least, he was outmaneuvered by a brilliant opportunist who, himself a software engineer of some prowess, could foresee future applications that may have eluded–or failed to interest–Kildall.

Kildall was more interested in solving problems than in scoring profits. A professor of computer science at the U.S. Naval Postgraduate School in Monterey, Calif., he convinced a fledgling Intel in 1972 to give him the prototype of its Sim-4 chip, which wouldn’t be available to the public for another four years. Out of this collaboration came Kildall’s Control Program for Microcomputers–or CP/M, the first operating system for microprocessors, which he sold to programmers. In 1976 Kildall and his wife, Dorothy McEwen, founded Digital Research International, to sell CP/M software and language compilers.

All the while Gates and
Paul Allen
were launching Microsoft and trying to adapt the Basic programming language invented by others in 1964 to the forerunner of the PC, the Altair 8800. By 1976 Gates had emerged as one of the most serious (and contentious) capitalists in the subculture of geeks who freely shared new ideas in a group called the Home Brew Computer Club, cofounded by Kildall. “Who can afford to do professional work for nothing?” Gates complained in an open letter to the club. He claimed he’d spent $40,000 in computer time developing Basic, but that, because only one in ten Altair owners paid for the software, his compensation amounted to $2 an hour. “There is very little incentive to make this software available to hobbyists,” he wrote. “Most directly, the thing you do is theft.”

The two software pioneers collided in 1980. That’s when IBM launched its top-secret program, Project Chess, to develop its PC. It needed an operating system and, surely, CP/M would have fit the bill. But at the time Kildall was onto a new problem–building a compiler for a programming language called PL-1, designed by IBM.

What happened next is still a matter of dispute. IBM sent a team to Redmond, Wash. for help on Project Chess, according to Michael S. Malone’s Infinite Loop
Doubleday
, 1999). Why Big Blue stooped to little Microsoft, Malone suggests, is explained by the fact that Gates’ mother, Mary, sat on the board of the United Way of America alongside IBM Chairman John Opel. After two meetings held under promises of confidentiality, IBM offered a hardware and software consulting deal. It wanted rights to a desktop operating system for a small sum; Gates was willing to oblige–on condition that he be given rights to sell copies to other computer makers for whatever the traffic would bear.

IBMalso asked about CP/M: Could it buy the system from Gates & Co.? Gates explained that IBM would have to deal with Kildall and offered to set up the meeting. Gates’ account is that he called Kildall and told him that “important customers” were going to visit and that he should “treat them right.” A nondisclosure agreement prevented him from offering more detail.

Kildall disputed this account. He claimed Gates had not impressed on him the importance of the meeting–and so Kildall skipped it for another appointment in San Jose, leaving the IBMers in the hands of McEwan, who handled hardware accounts. She refused to sign a nondisclosure agreement without Kildall’s knowledge, and so IBM left Digital Research without a word about Project Chess.

With Kildall’s apparent default, IBM approached Microsoft for an operating system. It didn’t have one. But Paul Allen knew someone who did: his friend
Tim Paterson
at tiny Seattle Computer Products–whose SCP-DOS, designed to run on the 8086 microchip, Gates bought for $75,000. Kildall was shocked when he learned that Microsoft had sold an operating system to IBM; he assumed he had a gentleman’s agreement with Gates to provide CP/M to supplement programming languages like Basic.

IBM eventually got in touch with Kildall, report Stephen Manes and Paul Andrew in GatesTouchstone
, 1993). But Kildall, they speculate, was wary of signing rights over to IBM because it was his only product at the time. Moreover, he was unable to supply a price or a delivery date for the newest version of his operating system, the CP/M-86.

It ended bitterly. Kildall threatened to sue IBM over using Microsoft’s operating system (renamed MS-DOS), which he believed had been ripped off from his own CP/M. To forestall legal action, IBM offered consumers the choice of either CP/M or MS-DOS. But at $240, six times the price of MS-DOS, CP/M was quickly headed for extinction. Kildall sold Digital Research to Novell in 1991. Three years later he died in a barroom confrontation with bikers.

Kildall may not have seen the implications of his software until it was too late. Other inventors fail to reap the rewards of their ideas since the very qualities that make them so creative–original thinking, obsessive concentration on one goal, detachment from everyday concerns–make it difficult for them to deal with the real, often cruel, world.

In 1967
Robert Kearns
invented the intermittent windshield wiper, now standard equipment on automobiles. He took the idea to the
Ford Motor Co.
in hopes of selling the device. After several years of inconclusive talks, Ford began offering the intermittent wipers on various models but without licensing the invention from Kearns, who sued. He finally settled with Ford for $10.2 million and also won a suit against
Chrysler
but lost his cases against
General Motors
and foreign manufacturers. The mess dragged on for more than 20 years; with legal meters ticking along steadily, the lawyers ended up as the chief beneficiaries.

Spinning machinery developed in the 18th century rendered cotton cloth made from fiber cheaper than wool. But cotton remained expensive, because removing the seeds embedded in the cotton boll, called ginning, was extremely labor-intensive. A field hand could pick about 50 pounds of cotton bolls a day, but removing the sticky seeds from that much cotton took a single worker a full 25 days’ labor.

Eli Whitney
revolutionized the textile industry by inventing the cotton gin in 1792. But he never got really rich from the tool. It wasn’t because someone stole his patent. Instead, the device was so simple that its patent was nearly impossible to enforce. The gin consisted of nothing more than a wooden roller studded with nails set half an inch apart. The nails pulled the cotton lint through a comb too fine to allow the seeds to pass, and a revolving brush then swept the lint off the nails and into a compartment. With the cotton gin a worker could clean 50 pounds of raw cotton a day.

With the labor component of ginning cotton reduced by a factor of 25, the price of cotton cloth plummeted and demand soared, driving the early Industrial Revolution in both England and New England. The American South turned out to be the best place on earth to grow the short-staple cotton that was best suited to Whitney’s invention, and a vast cotton boom ensued. The U.S. exported 2 million pounds of cotton to Europe in 1794. By 1860 it exported 1.8 billion pounds, constituting more than half the dollar value of all American exports.

By the time Whitney received a patent on an improved version of the gin in March 1794, gins were already widely in use, easily constructed by any competent carpenter. Whitney and a partner set up a factory in New Haven, Conn. But the factory soon burned down and, while rebuilt, was unable to compete with nearly ubiquitous homebuilt gins. Much of Whitney’s time was taken up with lawsuits seeking to enforce an unenforceable patent.

Edwin H. Armstrong
already had two notable inventions–the regenerative and the superheterodyne circuits, which amplified radio signals–by the time he won a patent for a wide-band frequency modulation (FM) system (see p. 138). But he spent the rest of his life fighting the Federal Communications Commission for spectrum rights and RCA’s
David Sarnoff
, who first ignored FM, then tried to buy out Armstrong and finally installed FM receivers in its TV sets without a license. Broke and despondent, Armstrong jumped from the window of his 13th floor New York City apartment.

Some of the greatest failures to exploit brilliant technologies have befallen not individuals but hidebound corporations. The award for signal ineptitude in this respect must go to
Xerox’s
Palo Alto Research Center. Founded as a research division in 1970, PARC invented many of what are now regarded as the essential attributes of the personal computer: the graphical user interface, the desktop concept, files and folders, multiple windows, Wysiwyg word processing, the Ethernet, the laser printer and a more advanced version of the mouse. And yet, incredibly,
Xerox
capitalized on none of these inventions, because its managers were fixated on how to improve its photocopier business. PARC tried to incorporate some of its ideas into the Alto, a computer system that would have retailed for $17,000–had it ever come to market. Xerox left others, Microsoft and
Apple Computer
among them, to commercialize its discoveries.

A few dreamers have eventually been dealt a great hand–fortuitously. Scottish-born
Alexander Graham Bell
offered to sell his patent on the telephone to Western Union in 1876 for a flat $100,000. He was turned down; the company didn’t think the device had much of a future. More fortunate still, Bell’s father-in-law,
Gardiner Hubbard
, went on to found
AT&T
and to exploit Bell’s creation.

One last happy exception: the story of
Gordon Gould
. This physicist, who worked on the Manhattan Project, had a classic eureka moment as he lay tossing in bed one Saturday night, Nov. 9, 1957. He had conceived of the laser (an acronym for “light amplification by stimulated emission of radiation”). He spent the rest of the night and the weekend writing a description, sketching necessary components and describing its many possible practical applications. He took his notebook to a nearby candy store where the proprietor, a notary public, witnessed it. According to Peter Franken, a physics professor at the University of Arizona, the notebook is incredible. “It’s as if God came down and whispered in Gordon’s ear and said, Listen, Buddy, this is what you’re going to do.’”

Gould, to be sure, was no 19th-century-style tinkerer when he invented the laser. He was a Ph.D. candidate at Columbia University, with access to major laboratory facilities. But he made a 19th-century tinkerer’s mistake. “I was so ignorant of the whole patent procedure that I [thought] I had to build a model in order to get a patent.” He didn’t file until 1959, by which time scientists at Bell Labs had already beat him to it. Fortunately for Gould, American patent law favors the first to conceive, not the first to file.

It would take Gould 30 years and millions of dollars to finally establish his priority in inventing the laser and to be awarded patents on its major components. Only in 1987 did the legal dust completely settle. The good news, however, was that the delay made him far richer than he otherwise might have been. Had his patents been issued promptly and been uncontested, they would have expired before many of the most remunerative uses–from supermarket scanners and weapons systems to scientific instruments and CD and DVD players–had come to commercial fruition.

John Steele Gordon is the author of five books on U.S. business and a contributing editor of American Heritage.